The Effects of Corruption on Contracts in Italy: The Long Road Towards a Legal and Fair, Competitive Market
© Springer International Publishing Switzerland 2015Michael Joachim Bonell and Olaf Meyer (eds.)The Impact of Corruption on International Commercial ContractsIus Comparatum – Global Studies in Comparative Law1110.1007/978-3-319-19054-9_9
9. The Effects of Corruption on Contracts in Italy: The Long Road Towards a Legal and Fair, Competitive Market
Angelo Sraffa Department of Legal Studies, Bocconi University, Via Roentgen 1, 20136 Milan, Italy
The Italian chapter aims to provide an analysis of the domestic specific provisions and the general principles governing the effects of corruption on the contracts concerned. Particular attention is given to the public procurement sector, being the area most vulnerable to corruption in Italy. The recent Expo scandal has shown how complex is to annulling contracts awarded when corrupt practices have affected the awarding process because of a fragmented and incoherent specific body of legislation derogating the traditional private law principles governing contract validity.
Italy is one of the most corrupt countries in Europe where corruption in the public sector is reported to be the most widespread notwithstanding recent legal reforms and restless judicial action.1 Typically, corruption is rife in developing countries that have weak legal systems. Conversely, Italy is one of the most important economies of the Eurozone and its legal system is well structured. Corruption in Italy is mainly domestic. There have been investigations of cases of corruption of foreign public officials abroad by domestic undertakings,2 but cases of foreign undertakings bribing domestic public officials are not reported. This means that Italian case law on corruption contracts only concerns domestic contracts.
This chapter aims to provide an analysis of the specific provisions and the general principles governing the effects of corruption on the contracts concerned. Particular attention is given to the public procurement sector, being the area most vulnerable to corruption.3 Annulling contracts awarded when corrupt practices have affected the awarding process is complex because the traditional private law principles governing contract validity in general must be integrated, and in some cases derogated from, by a fragmented and incoherent specific body of legislation. Finally, to complete the framework of private remedies for corruption in Italy, we discuss the most famous Italian damages recovery action brought by a victim of corruption, even though it does not relate to the validity of a contract, rather involving a case of judicial corruption.
9.2 The Definition of Corruption in the Italian Legal System
The most important international treaties concerning the fight against corruption provide a description of types of behaviours to be considered as acts of corruption and require Member States to criminalise them.4 Considering the domestic scope of criminal law, international cooperation in this field aims at building a universal and comprehensive legal understanding of the social behaviours falling within the meaning of acts of corruption. Domestic criminal law provides the general legal definition of corruption pertinent also for assessing the private law consequences of the transactions involved.
The Italian criminal law sanctioning acts of corruption has been subject to a constant process of reform to meet the international obligations resulting from the ratification of the two most important international treaties in this domain: the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 and the United Nations Convention against Corruption of 2003.5
Since the adoption of the OECD anti-bribery Convention in 2000, corruption in international business has been a criminal offence in Italy, with corporations also being capable of being held liable for the offence of foreign bribery committed by an agent. In order to implement and carry out its obligations under the Convention, respecting the fundamental constitutional principle of legality, Italy has extended the list of domestic bribery offences to include the corruption of foreign public officials. Instead of creating new legislative provisions, the Italian legislator, by way of Art 322 bis of the Italian Penal Code, extended all the various different types of corruption of domestic public officials to include foreign public officials, EU officials, the members of EU institutions and the judges of the International Criminal Court.6
The provisions of the Penal Code concerning domestic corruption were amended in 2012 in terms of law no 190/12 “[p]rovisions for preventing and fighting corruption and illegality in public administration”, also to meet the international obligations under the UN Convention against Corruption ratified in 2009. The bribery of a foreign public official, now also extended to foreign persons in charge of a public service, can be sanctioned as representing one of the following crimes:
Misappropriation of public funds – Peculato (Art 314 of the Italian Penal Code), now punishable by imprisonment of 4–10 years (formerly punishable by imprisonment of 3–10 years).
Misappropriation of public funds, taking advantage of the mistake of a third party – Peculato mediante profitto dell’errore altrui (Art 316 of the Italian Penal Code), punishable by imprisonment of 6 months to 3 years.
Bribery relating to lawful acts – Corruzione per un atto d’ufficio (improper bribery – Art 318 of the Italian Penal Code) now punishable by imprisonment of 1–5 years (formerly punishable by 6 months to 3 years’ imprisonment).
Bribery relating to unlawful acts – Corruzione per un atto contrario ai doveri d’ufficio (proper bribery – Art 319 of the Italian Penal Code) now punishable by imprisonment of 4–8 years (formerly punishable with 2–5 years’ imprisonment).
Judicial bribery – Corruzione in atti giudiziari (Art 319 ter of the Italian Penal Code), is now punishable by imprisonment of 4–10 years (formerly punishable by 3–8 years’ imprisonment) whereas the consequence of a decision handed down by a corrupt judge is now imprisonment of 5–12 years (formerly punishable by 4–12 years’ imprisonment).
Misconduct by a public official – Abuso d’ufficio (Art 323, para one of the Italian Penal Code) now punishable by imprisonment of 4–10 years (formerly punishable by 3–10 years’ imprisonment).
Extortion – Concussione (Art 317 of the Italian Penal Code), carrying a sentence of 6–12 years in prison for any public official who, abusing his/her own position or powers, forces someone to give or promise, to himself/herself or to a third party, any undue pecuniary or other advantage.
Undue inducement to give or promise favours – Induzione indebita a dare o promettere utilità – Concussione per induzione (new Art 319 quater of the Italian Penal Code), namely so-called extortion through inducement, carrying a sentence of 3–8 years in prison, unless the act involves any public official or person in charge of a public service who, abusing his/her position or powers, induces someone to give or promise, to himself/herself or to a third party, any undue pecuniary or other advantage, which is classified as a more serious offence. Contrary to the extortion offence, in the case where the individual who has been subject to extortion is considered a victim, the corruptor can also be punished by detention of up to 3 years.
Incitement to bribery – Istigazione alla corruzione (Art 322 of the Italian Penal Code), incitement to bribery relating to lawful and unlawful acts is sanctioned in the same way as bribery itself, but the punishment is reduced by a third.
Bribery in the private sector (corruzione tra privati) is covered by Art 2635 of the Civil Code (as amended by Statute no 190/2012 implementing Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector), carrying a sentence of up to 3 years in prison for directors, general managers, account executives, statutory auditors and liquidators who, as a consequence of the giving or promising of a pecuniary or other advantage, for their own or others’ benefit, perform or omit to perform actions in violation of the obligations pertaining to their office or of their duty of loyalty, causing harm to the company. A detention of 1 month up to 6 months is applicable if the act is committed by subordinate employees. The punishment is doubled when a publically listed company is involved. The offence is not punishable ex officio, but upon complaint by the victim. In the event that the bribery results in a distortion of competition, the crime can also be prosecuted ex officio.
In many of the cases falling within one of the specific corruption crimes punishable under Italian law, the criminal behaviour involves two different types of transactions: the contract providing for corruption and the contract procured by corruption. The basic scheme of domestic corruption involves two parties: the bribe-giver and the bribe-taker, where the former is also the beneficiary of the advantages. Especially when the corruption in question is transnational, the illegal scheme may be more complex with more than two subjects being involved in the crime. On the side of the bribe-taker a personal duplication is common: the principal and his agent. Also on the side of the briber one or more intermediaries can intervene on behalf of the subject paying the bribe.
The legal relationships between the principal, his agent, the briber and his intermediaries involve the stipulation of different contractual schemes. The contracts can be classified into contracts providing for corruptions and contracts procured by corruption.
The contracts providing for corruption are:
the “bribery agreement”: the contract between the briber and the bribe-taker;
the “commission agreement”: the contract between the principal and his agent or intermediaries, where the principal can be the briber or the bribe-taker.
The contract procured by corruption is:
the so called “main contract” in which the parties to the transaction are different from the individuals involved in the crime and usually comprise a public entity and a private undertaking.
9.3 The Consequences of Bribery for Contracts Providing for Corruption: The Invalidity of the Bribe and the Commission Agreement Under Italian General Contract Law
Corruption crimes have been defined as “crime-contracts” because the conclusion and the performance of the contract is the act of bribery punished as a crime.7 In Italy the bribery contract (the agreement between the briber and the bribe-taker) is void on the grounds both of illegality (infringing mandatory rules) and immorality/violation of public policy (ordine pubblico e buon costume). According to the Italian Civil Code (Art 1343) the causa of a contract is illegal when it is contrary to mandatory rules, public policy and morality. All criminal provisions are mandatory rules under the Italian legal system. Art 1344 Civil Code considers contracts designed to circumvent the law (the contract is a means of avoiding the application of mandatory rules) as a contract having an illegal causa. Moreover, Art 1346 Civil Code establishes that the object of the contract must be lawful. Contracts having an illegal causa and unlawful object and in which are generally contrary to mandatory rules are null and void (Art 1418 Civil Code). Nullity can be claimed by anyone having an interest in the contract and can be found, ex officio, by the court (Art 1421 Civil Code). There is no time limit for claiming for a judicial declaration of nullity of a contract (Art 1422 Civil Code).
The illegality of a bribery contract and its consequential nullity is not discussed. There are different opinions as to the categorization, causa or object illegality,8 but the nullity of the contract is undisputed.
In general terms, an illegal contract, such as a bribery agreement, cannot be enforced and the parties are denied any remedies under it. This means that both the briber and the bribe-taker cannot successfully bring an action claiming the enforcement of the contract, even when one of the obligations has been performed. The consequence of nullity is a strict unenforceability of the bribery contract. It is quite evident that civil courts cannot provide judicial protection to any party to a bribery agreement, being required, as they are, to protect the general interests pursued by the criminal provisions against corruption, also in the sphere of private litigation.
The recovery of the payment of a bribe which has already been made cannot be enforced either, because of the illegality of the contract. The general principle expressed by Art 2033 Italian Civil Code concerning the duty to return a payment received under a contract which is null and void, cannot apply to the bribery agreement. In the case of a bribery agreement, the special principle ex turpi causa non oritur actio prevails. In fact, Art 2035 Civil Code reads as follows: “anyone who has effected performance under a contract for a purpose which, even to himself, is immoral, cannot demand the return of what he has paid”. This provision gives civil effect to the criminal punishment of confiscation of the bribe.9 In fact, according to Art 322 bis Italian Penal Code, the punishment of all corruption crimes should include confiscation of any bribe and the proceeds of the bribery.
From a private law perspective, the consequences of corruption on the “commission agreement” are the same as those on the bribery agreement. Indeed, the illegality of the contract derives from the fact that the actions required to perform the commission agreement are the same as those triggering criminal liability. The role of an agent or an intermediary in corruption is classified by the criminal courts within the scheme of complicity or conspiracy in corruption crimes.10 As well as the bribery contract, the commission agreement is null and void, and the parties cannot rely on the assistance of the court in seeking the enforcement of their illegal contract. The same provisions governing the validity of the bribery agreement apply to the commission agreement too.
There is only one reported case decided by an ordinary court on contracts providing for corruption. The case, heard by the Court of Milan, dates back to 1995 (Tribunale di Milano, 15/07/1995 Biasini v Tadini Impianti SpA) and relates to the validity of a contract between an independent intermediary and a principal concluded to “facilitate” the award of public contracts in public procurement procedures. The Court found the contract to be null and denied any claim of restitution for both parties to the bribery contract.
9.4 Consequences of Bribery for Contracts Procured by Corruption: The Validity of the Main Contract and Special Legislation on Public Procurement
The legal existence of a contract procured by corruption, ie the main contract, is a far more complex issue.